Corruption isn’t an issue that Jacob Zuma, the current president of the African National Congress – South Africa’s liberation party – is particularly enthusiastic about. Until prosecutors dropped charges in early April, Zuma stood accused of three dozen counts of corruption, graft, fraud, and racketeering related to a rigged multibillion-dollar arms deal. He was alleged to have accepted 783 payments from French arms multinational Thint via his financial advisor Shabir Sheik, who was later convicted for graft, fraud, and corruption. Sheik has since emerged from prison, serving just 28 months of his 15-year term.

In Africa, political power is often used as a “get out of jail free” card, immunizing the venal political elite through various mechanisms. Transparency International, the global corruption watchdog renowned for its annual Corruption Perceptions Index(CPI), argues that corruption is especially rampant in Africa. TI defines corruption as the “abuse of entrusted power for private gain,” a notion limited to the governing bodies in developing countries.

But this is only half the story. A respectable financial army plays an invaluable role in a global shadow economy. A coterie of bankers, accountants, and lawyers – based in “transparent” London, New York, and Singapore – serve as the agents of tax havens and offshore financial centers, and they’re backed by multilateral financial institutions. Corrupt government leaders get away with graft much more easily and more frequently because of these international financial enablers.

Capital Flight

According to Global Financial Integrity’s Raymond Baker, a leading capital flight expert, an estimated $900 billion is siphoned from underdeveloped regions each year. Since the 1970s, Africa has experienced a loss of $600 billion in capital flight, a considerable portion derived from odious loans that commercial and development banks provided to despotic regimes. Harvard economist James Henry argues that that more than $1 trillion worth of loans “disappeared into corruption-ridden projects or was simply stolen outright.”

Facilitating this theft are the IMF and World Bank’s structural adjustment programs through tax competition, liberalized trade, and natural resources auctioned piecemeal to corporations. These multilateral institutions made it easier for politicians and corporations to acquire capital and then spirit it out of the country.

“The IMF pushed the Washington Consensus, pushed free trade for corporations, providing them with market access and minimum impediments in Africa such as tax competition,” said Richard Murphy, director of Tax Research LLP. “The IMF helped companies not to pay their taxes. They got it horribly wrong.”

Despite TI’s emphasis on corrupt political environments – which has since become the definition of corruption – less than 5% of capital flight comes from this narrow category, according to Murphy. A much larger portion of capital flight, 30%, derives from garden-variety crimes like drug trafficking and money laundering. Multinational internal mispricing, meanwhile, constitutes an astounding 60% of illicit flight.

“TI has got it all wrong,” stated Murphy. “Transfer mispricing constitutes the largest portion of flight capital.” But even when capital flight happens because of corruption narrowly understood, like bribery, where does the money end up? Probably tax havens and places like Switzerland, which zealously protects the privacy of its depositors. Though Sudan, Chad, Equatorial Guinea and Zimbabwe rank near to last on CPI’s list of 180 countries, Switzerland comes in at a pristine fifth place. “The idea that Switzerland has a clean economy is a joke. It is a dirt-driven economy,” said Murphy.

Shadow Economies

Tax justice was billed as the “big issue” of the recent G20 meeting in London, a gathering of the largest economies in the world. By targeting Switzerland and numerous island economies, Prime Minister Gordon Brown conveniently shifted attention away from UK crown dependencies and overseas territories, accounting for more than a quarter of all tax havens worldwide.

And London is the head office.

“Tax havens are little more than booking centers. I’ve seen transactions where all the decisions are made in London, but booked in havens,” stated an official of Britain’s Serious Fraud Office, to John Christensen, cofounder of the Tax Justice Network and former economic advisor to Jersey, one of the world’s leading tax havens – and a UK crown dependency.

High-net-worth individuals have already secreted away more than $11.4 trillion, Christensen estimates, resulting in a loss of over $250 billion in taxes each year, minus corporate profits declared in tax havens.

“The IMF is in favor of the highly flawed incentive of tax holidays. Many countries have lost huge sums of revenue, because tax incentives undermine revenue base of developing countries,” said Christensen. “Corporations prefer weak governments that are anxious to secure investments, and despotic governments,” he stated.

Over 60% of global trade occurs in unobserved vacuums. The Organization for Economic Cooperation and Development (OECD), composed of 27 high-income countries, have decided to focus on these conduits as well as the exotic islands, thus marginalizing and absolving structural exploitation, the lax regulation, and the culture of secrecy, all of which underpins the larger OECD economies such as London.

The strength of offshore hubs – an intricate labyrinth that facilitates flight and protects the corrupt through obscuring transparency, depends on the lack of automatic exchange of information between countries experiencing capital flight and those on the receiving end. After intensive lobbying by the international financial community, the IMF removed just such a provision on information exchange from the final drafts of its Article of Agreement. Presently, governments are only able to interrogate havens when already in possession of data related to illicit financial transactions and assets. The power of offshore hubs expanded when the IMF paved the way for capital account liberalization in the late 1970s. Cross-border flows increased eightfold. Unlike tax havens, offshore hubs relocate at the first sign of financial regulation. This is often done via costly flee clauses. The move to target and regulate tax havens, which range from shell companies to conduit markets to hedge funds, shouldn’t detract from the importance of regulating offshore hubs as distinct entities.

Going after the Real Corrupters

During his days on the throne, according to the Tax Justice Network’s John Christensen, former Nigerian dictator Sani Abacha had a standing order to transfer $15 million from state coffers to his Swiss bank account each day, resulting in a personal fortune of $3-$5 billion. One hundred banks (including Citigroup) knowingly protected Abacha and facilitated his plunder. Since the early 1990s, the population of Nigerians living on less than one dollar per day has increased by 10%.

Nigeria’s economy is largely dependent on hydrocarbon contracts, which is the root of the problem. “Hydrocarbon contracts in particular are very secretive, especially with regards to taxation, and it is difficult to get evidence of payment, with many political parties and politicians receiving payment on the side,” said Christensen.

Nigeria isn’t the only country subject to opaque transactions and capital flight. Wall Street’s $56 trillion tumble was triggered by toxic assets traded in the shadow economy. Suddenly, the spotlight in the United States fell on discretely marketed tax havens and powerful multinationals, many of them on the receiving end of taxpayer-subsidized bail-out funds. The Government Accountability Office reported that 83 of the top 100 corporations maintained multiple subsidiary units in tax havens.

The key to addressing corruption in the broadest sense is through country-by-country reporting. Such reports reveal the presence of multinationals in each country, trade names, financial performance, physical assets, the number of employees, sales to third parties, and intra-group trading, profits, and tax payments to the governments in each location. “Country-by-country reporting already works in the US where states all have different corporate taxes,” stated Murphy. “It would allow us to ‘look through’ havens, and if nothing of value is added there, we can simply ignore it and tax the companies where performance is happening.”

The automatic exchange of information in conjunction with country-by-country reporting would bolster accountability by precipitating automatic sanctions on havens, disincentivising capital flight and corruption. In doing so, the magnifying glass of transparency would fall on unchecked and unregulated shadow economies in developed and developing countries alike.

Much is being made across the political spectrum in the United States about Washington’s waning influence in Latin America. The region has seen an emergence of left and center-left presidents voted into office, many as a result of budding social movements growing democracy from the grassroots. Some pundits and analysts are suggesting that this phenomenon is occurring because of the Bush Administration’s perceived neglect of the region. Rather, what is happening is blowback from Washington’s continued meddling in the economic and political affairs of an area arrogantly referred to as the United States’ “backyard.” Latin America’s growing unity in rejecting the Washington Consensus remains fragile in the face of U.S. opposition. Washington has been quietly using the war on drugs, the war on terrorism, and a neo-cold war ideology to institutionalize a militarism in the region that risks returning us to the not so far off days of “dirty wars.”

Breaking the Chains

Venezuelan President Hugo Chavez’s election in 1998 sparked the beginning of the leftward electoral paradigm shift in the hemisphere. After he orchestrated a failed coup attempt in 1992, he was elected six years later based on a campaign that promised to lift up the impoverished nation’s poor majority through economic policies that ran counter to the free market fundamentalism and crony capitalism pursued by the country’s oligarchs, with the aid of Washington and international financial institutions such as the World Bank and the International Monetary Fund (IMF). Chavez also began to challenge the idea of U.S. hegemony in the region by advocating a united Latin America based on the ideas of one of his intellectual mentors, Simón Bolívar, the 19th century revolutionary instrumental in defeating Spain’s control of the region. Chavez, who also claims to be influenced by the teachings of Karl Marx and Jesus Christ, has championed what he calls a “Socialism of the 21st Century.” A fierce and outspoken critic of neoliberalism, Chavez has said “I am convinced that a path to a new, better and possible world is socialism, not capitalism,” words that have been scarce in the region’s capitals with the exception of Cuba.

Since Chavez’s ascent to power, we have seen presidents elected in Argentina, Bolivia, Brazil, Chile, Ecuador, Nicaragua, Paraguay, and Uruguay which translates into a majority of countries in the region advocating center-left and left-wing political programs (while Mexico and Peru missed joining this new Latin American consensus by narrow, if not fraudulent, election outcomes).

While it is true that, despite these developments, socialism is a long way off from taking hold in the region, the rejection of Washington’s Free Trade Area of the Americas (FTAA) back in 2003, long before the left had firmly taken hold in the hemisphere, marked the beginning of an outright challenge to free market orthodoxy, U.S. hegemony, and corporate power. Since then we have seen multinational corporations booted out of countries and defiantly confronted by social movements, U.S. ambassadors expelled from three nation’s capitals, free trade agreements protested, illegitimate foreign debts challenged, and U.S. drug policies rejected. In addition, alternative political and economic institutions and policies have been advocated and created.

Venezuela’s Chavez developed the Bolivarian Alternative for the Americas (ALBA), an antithesis to the FTAA that advocates a trade regime based on economic, social, and political integration guided by the principals of solidarity and cooperation. Even Honduras, long seen as a U.S. satellite state dating back to the days it assisted Washington in overthrowing Guatemala’s government in 1954, has joined ALBA, showing that the creeping tide of Bolivarianism is extending to the still fragile Central America. Meanwhile, Brazil’s Lula de Silva, viewed by Washington and the U.S. corporate media as part of the “acceptable” or “responsible” left, declared in 2007 that “Developing nations must create their own mechanisms of finance instead of suffering under those of the IMF and the World Bank, which are institutions of rich nations . . . it is time to wake up.” And the region has woken up as the “Bank of the South” was formed to make development loans without the draconian economic prescriptions of Washington-controlled financial institutions, which in the past have forced countries to cut social spending, deregulate industries, and open markets to foreign capital — policies that have exacerbated poverty and inequality in the past and as a result compounded dependence on foreign capital and Washington.

In terms of security cooperation, both Brazil and Venezuela have led efforts to create a South American Defense Council, a NATO-style regional body that would coordinate defense policies, deal with internal conflicts and presumably diminish Washington’s influence in its “backyard.” While U.S. Secretary of State Condoleezza Rice said back in March that Washington “had no problem with it” and looked “forward to coordination with it,” Bloomberg News reported that Brazilian Defense Minister Nelson Jobim told Rice and National Security Adviser Stephen Hadley that the United States should “watch from the outside and keep its distance,” and that “this is a South American council and we have no obligation to ask for a license from the United States to do it.” In a similar challenge to U.S. military presence and influence, Ecuador’s President Rafael Correa decided to force the United States. to close its military base in the port city of Manta. And then there is China’s and Russia’s growing economic and political ties to the region — something that would not only be unheard of in the past, but not tolerated.

Developments such as these led the Council on Foreign Relations to declare in May that the “era of the United States as the dominant influence in Latin America is over.” Frank Bajak, writing for the Associated Press on Oct. 11, echoed this observation when he wrote, “U.S. clout in what it once considered its backyard has sunk to perhaps the lowest point in decades” and that “it’s unlikely to be able to leverage economic influence in Latin America anytime soon.” Meanwhile, The Washington Post took a more indignant and belligerent position in an Oct. 6 editorial when it questioned whether Washington should “continue to subsidize governments that treat it as an enemy” while “a significant part of Latin America continues to march away from the ‘Washington consensus’ of democracy and free-market capitalism that has governed the region for a generation.”

While conventional thinking has led many to believe that Latin America’s independence from the United States may be an irreversible paradigm shift, behind the scenes Washington has put into place policies that could unleash a reign of terror not seen since the 1980’s. Colombia has served as laboratory for this new counterinsurgency program that can be interpreted as a continuance of U.S. supported state terrorism and a re-emergence of the national security state in Latin America.

The U.S. government has sent more than $5 billion in mostly military and counter-narcotics assistance to Colombia since 2000 to fund “Plan Colombia,” a counter drug program said to be designed to fight cocaine production and narco-trafficking, as well as the Revolutionary Armed Forces of Colombia (FARC), in turn further intensifying the country’s long-standing civil war. But as the International Consortium of Investigative Journalists (ICIJ) reported in 2001 in a study sponsored by the Center for Responsive Politics, “The protection of U.S. oil and trade interests is also a key factor in the plan, and historic links to drug-trafficking right-wing guerrillas by U.S. allies belie an exclusive commitment to extirpating drug trafficking.”

The ICIJ investigation also found that “Major U.S. oil companies have lobbied Congress intensely to promote additional military aid to Colombia, in order to secure their investments in that country and create a better climate for future exploration of Colombia’s vast potential reserves.” In addition, corporations with interests in the region were reported to have spent almost $100 million lobbying Congress to affect U.S. Latin America policy.

Eight years later, Colombia has evolved into a full-fledged paramilitary state. President Álvaro Uribe, Washington’s staunchest ally in the region, his extended family, and many of his political supporters in the government and military are under investigation for ties to paramilitaries and right-wing death squads. As far as U.S. corporate collusion goes, Chiquita Brands International Inc. was forced to pay the U.S. Justice Department a $25 million settlement in 2007 for giving over $1 million to the right-wing terrorist organization United Self-Defense Forces of Colombia (AUC). Even more damaging is the fact that Secretary of Homeland Security Michael Chertoff, at the time assistant attorney general, knew about the company’s relationship with AUC and did nothing to stop it. Alabama-based coal company Drummond Co., Inc. and Coca-Cola have also been accused of hiring right-wing death squads to intimidate, murder or disappear trade unionists. This is what the ICIJ meant when they wrote about securing investments and creating a “better climate” for business.

According to the U.S. Labor Education on the Americas Project, Colombia accounts for more than 60 percent of trade unionists killed worldwide. There have also been at least 17 murders of trade unionists just this year, which, according to a report released in April 2008, accounts for an 89 percent increase in murders over the same time period from 2007. Meanwhile, The Washington Post reported in August that the collateral damage from Colombia’s civil war has resulted in more disappearances than occurred in El Salvador and Chile, while Colombia’s attorney general believes there could be as many as 10,000 more bodies scattered across the country — meaning totals would surpass those from Argentina and Peru.

Despite what should be considered as a total failure from a policy and, more importantly, human rights standpoint, this same Colombian model has been promoted by Washington to other nations in the region, and — remarkably — has been embraced by these countries. In 2005, Guatemalan officials called for their own “Plan Guatemala,” while Oscar Berger, president at the time, asked for a permanent DEA station in the country and for U.S. military personnel to conduct anti-narcotics operations. In addition, he was a proponent of a regional rapid deployment force, initially conceived to fight gangs, but later adjusted to include counter-narcotics and counter-terrorism in order to attract U.S. support. It should be noted that the AFL-CIO, along with six Guatemalan unions, filed a complaint, allowed through labor provisions of the Central America Free Trade Agreement (CAFTA), on April 23, 2008, charging the Guatemalan government with not upholding its labor laws and for failing to investigate and prosecute crimes against union members — which include rape and murder. This speaks to the idea of securing a “business-friendly” climate like in Colombia, which many in Washington want to reward with a free trade agreement. Guatemala’s government is currently led by President Alvaro Colom, a politician who represents the country’s ruling oligarchs. Pre-election violence during his campaign claimed the lives of over 50 candidates (or their family members) and political activists, in a country Amnesty International reports is infested with “clandestine groups” comprised of members of “the business sector, private security companies, common criminals, gang members and possibly ex and current members of the armed forces” responsible for targeting human rights activists.

This regional militaristic strategy finally materialized into policy on June 30 when President Bush signed into law the Meridia Initiative, or “Plan Mexico,” which according to Laura Carlsen of the Americas Program “could allocate up to $1.6 billion to Mexico, Central American, and Caribbean countries for security aid to design and carry out counter-narcotics, counter-terrorism, and border security measures.”

Just one day later, investigative journalist Kristen Bricker reported that a video had surfaced showing a U.S.-based private security company teaching torture techniques to Mexican police. This led Amnesty International to call for an investigation on July 3 to determine why techniques such as “holding a detainee down in a pit full of excrement and rats and forcing water up the nostrils of the detainee in order to secure information” were being taught. Later in July the Inter Press Service published a story about a 53-page report on Human Rights and Conflicts in Central America 2007-2008 that suggested “Central America is backsliding badly on human rights issues, and social unrest could flare up into civil wars like those experienced in the last decades of the 20th century.”

Nevertheless, Washington continues to push for the re-militarization of the region, as evidenced by a $2.6 million aid package given to El Salvador in October to “fight gangs.” Coincidentally, this was announced just months after the Inter Press Service reported in a June 16 article that U.S. Deputy Secretary of State John Negroponte “expressed concern over supposed ties between the Revolutionary Armed Forces of Colombia (FARC) guerrillas and the Farabundo Martí National Liberation Front (FMLN),” while also announcing that “the Bush administration is on the alert to Iran’s presence in Central America.”

Playing the Terror Card

In order to up the ante as a means of promoting this militaristic vision for the Americas and to vilify strategic “enemies” such as Venezuela’s Hugo Chavez and Bolivia’s Evo Morales, Washington has added the “War on Terror” into the equation by spreading unfounded allegations about Islamic terrorist infiltration into the region.

Journalists Ben Dangl and April Howard of Upside Down World, reporting for EXTRA! in Oct. 2007, wrote “In the Cold War, Washington and the media used the word ‘communism’ to rally public opinion against political opponents. Now, in the post– September 11 world, there is a new verbal weapon — ‘terrorism.'” This puts into context Washington’s evidence-lacking assertions that the Tri-Border Area, where Brazil, Paraguay and Argentina meet, is a hub for Islamic Terrorist groups such as Hezbollah and Hamas, claims the mainstream media have obsequiously parroted, yet Dangl and Howard helped disprove. Dangl and Howard, reporting from Ciudad del Este, a city located in the center of this alleged “hotbed” of terrorsim, talked with Paraguayan officials, as well as local residents, all of whom denied there was any presence of foreign terrorist groups. They pointed out that the governments of Brazil and Argentina have also denied the claims. But the terrorist assertions haven’t stopped there.

Norman A. Bailey, a former U.S. spy chief for Cuba and Venezuela, testified before the House Committee on Foreign Affairs on July 17 that “financial support has been provided [by drug traffickers] to insurgent groups in certain countries, most notoriously to the FARC in Colombia, as well as to ETA, the Basque separatist organization, and most importantly to Hamas, Hezbollah and Islamic Jihad, through their extensive network in Venezuela and elsewhere in Latin America.”

The State Department’s David M. Luna, Director for Anticrime Programs, Bureau of International Narcotics and Law Enforcement Affairs, gave a statement on Oct. 8 claiming that international terrorist organizations will collaborate with regional criminal networks to smuggle WMD’s across the U.S.’s border with Mexico.

“Fighting transnational crime must go hand in hand with fighting terrorists, if we want to ensure that we ‘surface them,’” stated Luna. He also went on to regurgitate the empty claims of the Tri-Border Islamic threat.

That same day the Associated Press reported that U.S. officials were concerned with alliances being formed by terrorist groups such as Al-Qaida and Hezbollah and Latin American drug cartels.

“The presence of these people in the region leaves open the possibility that they will attempt to attack the United States,” said Charles Allen, a veteran CIA analyst. “The threats in this hemisphere are real. We cannot ignore them.”

And on Oct. 21 TheLos Angeles Times reported that U.S. and Colombian officials allegedly dismantled a drug and money laundering ring used to finance Hezbollah.

This post-Sept. 11 fear-mongering, being carried out for years now, has served as a pretext for Washington to deploy Special Operations troops in embassies across the globe, including Latin America, “to gather intelligence on terrorists…for potential missions to disrupt, capture or kill them.”

The New York Times, which broke the story on March 8, 2006, reported that this initiative, led by then-Secretary of Defense Donald Rumsfeld, was an attempt to broaden the U.S. military’s role in intelligence gathering. The soldiers, referred to as “Military Liaison Elements,” were initially deployed without the knowledge of local ambassadors. This changed after an armed robber in Paraguay was killed after attempting to rob a group of soldiers covertly deployed to the country. Senior embassy officials were “embarrassed” by the episode as the soldiers were operating out of a hotel, rather than the embassy.

But in a follow-up by The Washington Post on April 22, “the Pentagon gained the leeway to inform — rather than gain the approval of — the U.S. ambassador before conducting military operations in a foreign country” when deploying these “elite Special Operations Troops.” This development has remained largely under the radar, with the exception of analysis by Just the Facts, a joint project of the Center for International Policy, the Latin American Working Group Education Fund, and the Washington Office on Latin America.

A New Cold War?

In Oct. 2006 President Bush signed a waiver that authorized the U.S. military to resume certain types of training to a number of militaries in the region which had been suspended as a result of a bill intended to punish countries not signing bilateral agreements that would grant immunity to U.S. citizens from prosecution before the International Criminal Court.

Bush was forced to act as a result of Venezuela’s growing influence in the region, as well as the “red” threat that China’s growing business in the region presented.

“The Chinese are standing by and I can’t think of anything that is worse than having those people go over there and get indoctrinated by them. And I think maybe we should address that because that’s a very serious thing,” said Sen. James Inhofe (R-OK), at a March 14, 2008, hearing of the Senate Armed Services Committee.

Sen. Hillary Rodham Clinton (D-NY), at the same hearing, said this was “a serious threat” and called for ending the restrictions on U.S. military training programs imposed on Latin American nations for refusing to sign the bilateral immunity agreements. Of course, Latin American nations should not be subject to sanctions for quite properly rejecting the immunity agreements; but neither should there be training programs for their repressive militaries, to teach these militaries repressive practices.

The Associated Press reported in Oct. that “China’s trade with Latin America jumped from $10 billion in 2000 to $102.6 billion last year. [And] In May, a state-owned Chinese company agreed to buy a Peruvian copper mine for $2.1 billion.”

These developments should further perpetuate the “Red Scare” making its way through the Senate. Then there is Russia’s military sales and cooperation with Venezuela. U.S. News and World Report’s Alastair Gee wrote a fear-mongering article on Oct. 14, 2008, in which he stated, “This is not the first time Russians have sought close links with Latin America. In 1962, the stationing of Soviet missiles in Cuba nearly precipitated nuclear war with the United States. The Soviets also funded regional communist parties and invited students from the region to study in Soviet universities.”

But more importantly, it is the region’s “march away from the ‘Washington consensus’ of democracy and free-market capitalism” that has drummed up a cold war mentality in Washington. With democratically elected presidents in the region openly embracing socialism and socialist-style policies, economic programs in various countries that include nationalizing industries and “redistributing the wealth”, and social movements ideologically and physically confronting free market capitalism, it should come as no surprise that anti-globalization movements have found themselves classified as a national security threat to the United States. A declassified April 2006 National Intelligence Estimate entitled “Trends in Global Terrorism: Implications for the United States,” states, “Anti-U.S. and anti-globalization sentiment is on the rise and fueling other radical ideologies. This could prompt some leftist, nationalist, or separatist groups to adopt terrorist methods to attack US interests.”

Moving Forward

Developments in Latin America are reason for hope and optimism that “a new, better and possible world” could be on the horizon. But these very same reasons are cause for concern.

With Washington’s imperial stretch on the decline, both militarily and economically, both history and current conditions suggest it will try to reassert itself in Latin America — just as it did after Vietnam.

But because of the deeply embedded and institutionalized nature of Washington’s imperial machine, it doesn’t matter much which party controls the White House and Congress. To fight these developments, we need to continue to grow grassroots media projects and support independent journalists, build long-term solidarity with Latin American social movements and build social movements in the United States, fight free trade and do our part to shed light upon the structural violence threatening Latin America’s promising future — which is directly tied to ours.

Toward a New Latin America Policy

The election of Barack Obama provides an opportunity for the United States to change its relationship with the other nations of the hemisphere. It is up to us, as advocates for justice in the hemisphere, to push the Obama administration to end the long legacy of using Latin America’s blood and gold for U.S. ends. Now is the time to ensure that the next administration brings to the Americas not just change, but justice.

During the presidential campaign, the LASC sent a letter to Obama in which it articulated 11 policy changes we would like to see happen under the new administration. The January/February issue of NACLA Report on the Americas will also feature articles advocating a new U.S. relationship with Latin America. The LASC and NACLA realize that in order to achieve these goals, it will take more than a change in the White House – it will take the kind of hard and persistent grassroots organizing that has brought the victories that we are seeing in Latin America.

The two organizations have decided to combine their efforts to organize three events featuring activists and scholars aimed at building grassroots power and educating the public and policy makers on three broad topics, tentatively scheduled as follows:

We want you to be involved! This is an invitation for your organization, university, Latin American studies department, or student group to sponsor, host, and participate in planning these important events aimed at promoting a new U.S. policy toward our neighbors based on respect for sovereignty and self-determination, respect for democracy and elections, and respect for human rights.

The events start on Sunday, February 15 with reflection, discussion, and strategizing around the campaign to close the School of the Americas (SOA/ WHINSEC). The campaign is at a critical stage and we need everyone’s ideas, creativity and energy.

The SOA Watch Encuentro will be followed by a 6:00-9:00pm Anti-Militarization Program, featuring activists, distinguished academics, and writers. The evening program will be looking at issues of US-Latin America relations specifically in the areas of militarization.

On Monday, February 16, a Grassroots Lobby Training and an Arts and Action Workshop will take place in preparation for lobby visits and street theater on Capitol Hill on Monday and Tuesday, February 16/17, 2009.

November 12, 2008 — One of Barack Obama’s leading advisers has done more damage to Africa, its economies and its people than anyone I can think of in world history, including even Cecil John Rhodes. That charge may surprise readers, but hear me out.

His name is Paul Volcker, and although he is relatively unknown around the world, the 82-year-old banker was recommended as “a legend!” to Obama by Austan Goolsbee, the president-elect’s chief economic adviser (and a professor at the University of Chicago). Volcker was recently profiled by the Wall Street Journal: “The cigar-chomping central banker from 1979 to 1987, he received blame for driving up interest rates and tipping the US into the deepest recession since the Great Depression.”

We’ll consider the impact of Volcker’s rule on Africa in a moment. But why dredge up crimes nearly 30 years old?

This kind of reckoning is important, as three current examples suggest:

Reparations lawsuits are now being heard in New York by victims of apartheid who are collectively requesting US$400 billion in damages from three dozen US corporations who profited from South African operations during the same period. Supreme Court justices had so many investments in these companies that in May they had to bounce the case back to a lower New York court to decide, effectively throwing out an earlier judgment against the plaintiffs: the Jubilee anti-debt movement, the Khulumani Support Group for apartheid victicms, and 17 000 other black South Africans.

Last month a San Francisco court began considering a similar reparations lawsuit — under the Alien Tort Claims Act — filed by Larry Bowoto and the Ilaje people of the Niger Delta against Chevron for 1998 murders similar to those that took the life of Ken Saro-Wiwa on November 10, 1995.

In Boston last month, Harvard University’s Pride Chigwedere released a study into preventable deaths — at least 330 000 — caused by former African National Congress and South African President Thabo Mbeki’s AIDS policies during the early 2000s. The ex-president has “blood on his hands”, according to Zackie Achmat of the Treatment Action Campaign, requesting a judicial inquiry.

The same critical treatment is appropriate for Volcker, because of the awesome financial destruction he imposed, within most Africans’ living memory. His policies stunted the continent’s growth when it most needed internal economic coherence.

Even the International Monetary Fund’s official history cannot avoid using the famous phrase most associated with the Fed chair’s name: “The origins of the debt crisis of the 1980s may be traced back to and through the lurching efforts of the world’s governments to cope with the economic instabilities of the 1970s… [including the] monetary contraction in the United States (the ‘Volcker Shock’) that brought a sharp rise in world interest rates and a sustained appreciation of the dollar.”

Volcker’s decision to raise rates so high to rid the US economy of inflation and strengthen the fast-falling dollar had special significance in Africa, write British academics Sarah Bracking and Graham Harrison: “1979 marked a radical change in global economic policy, inaugurated with the ‘Volcker Shock’ (so called after Paul Volcker, then chairman of the Board of Governors of the Federal Reserve) when the United States suddenly and dramatically raised interest rates, [which] increased the cost of African debt precipitously, since a majority of debt stock was held in dollars. The majority of the newly independent states had been effectively delivered into at least twenty years of indentured labor. From that point on access to finance became a key policing mechanism directed at African populations.”

Adds journalist Naomi Klein in her book The Shock Doctrine, “In developing countries carrying heavy debt loads, the Volcker Shock was like a giant Taser gun fired from Washington, sending the developing world into convulsions. Soaring interest rates meant higher interest payments on foreign debts, and often the higher payments could only be met by taking on more loans… It was after the Volcker Shock that Brazil’s debt exploded, doubling from $50 billion to $100 billion in six years. Many African countries, having borrowed heavily in the seventies, found themselves in similar straits: Nigeria’s debt in the same short time period went from $9 billion to $29 billion.”

The numbers involved were daunting for low-income countries. According to University of California economic geographer Gillian Hart, “Medium and long-term public debt shot up from $75.1 billion in 1970 to $634.4 billion in 1983. It was the so-called Volcker Shock… that ushered in the debt crisis, the neoliberal counterrevolution, and vastly changed roles of the World Bank and IMF in Latin America, Africa, and parts of Asia.”

Elmar Altvater of Berlin’s Free University recalls how the world “slid into the debt crisis of the 1980s after the US Federal Reserve tripled interest rates (the so called ‘Volcker Shock’), leading to what later has been described as the ‘lost decade’ for the developing world.”

How “lost”? The British Medical Journal complained in 1999 of orthodox World Bank structural adjustment policies that immediately followed: “According to Unicef, a drop of 10-25% in average incomes in the 1980s-the decade noted for structural adjustment lending-in Africa and Latin America, and a 25% reduction in spending per capita on health and a 50% reduction per capita on education in the poorest countries of the world, are mostly attributable to structural adjustment policies. Unicef has estimated that such adverse effects on progress in developing countries resulted in the deaths of half a million young children-and in just a 12-month period.”

A few honest mainstream economists also explain Africa’s economic crisis in these terms. “The external shock that might have precipitated the developing country slowdown is the increase in real interest rates after the Volcker Shock in 1979”, wrote World Bank senior researcher William Easterly in 2001. “The interest on external debt as a ratio to GDP has a statistically significant and negative effect on growth.”

A few blocks away from the Federal Reserve, one of Volcker’s closest allies was World Bank president Tom Clausen, formerly Bank of America chief executive officer. As the Volcker Shock wore on, in 1983, Clausen offered his board of directors this frank confession: “We must ask ourselves: How much pressure can these nations be expected to bear? How far can the poorest peoples be pushed into further reducing their meagre standards of living? How resilient are the political systems and institutions in these countries in the face of steadily worsening conditions? I don’t have the answers to these important questions. But if these countries are pushed too far, and too much is demanded of them without the provision of substantial assistance in their adjustment efforts, we must face the consequences. And those will surely exact a cost in terms of human suffering and political instability.”

At that point, “Africa was not even on my radar screen”, Volcker told interviewers Leo Panitch and Sam Gindin.

Meanwhile, the World Bank’s sister institution, the International Monetary Fund, was described by Tanzanian president Julius Nyerere as “a neo-colonial institution which exploits the poor to make them poorer and serves the rich to become richer”. Volcker had, ironically, played a central role in the destruction of the Bretton Woods system’s dollar-gold convertibility arrangement, effectively a US$80 billion default on holders of dollars abroad, when in 1971 he served Richard Nixon as under-secretary of the Treasury.

Eight years later, he was chosen to chair the Federal Reserve, which sets US (and by extension world) interest rates. As Jimmy Carter’s domestic policy advisor Stuart Eizenstat explained, “Volcker was selected because he was the candidate of Wall Street. This was their price, in effect.”

In 1985, Ronald Reagan offered Clausen’s job to Volcker, but he decided to stay on at the Fed until 1987, when he went back to a high-paid Wall Street job.

He’s back

Now he is back, and according to a recent profile by the Wall Street Journal, “Obama is increasingly relying on Mr. Volcker. His staff now routinely reviews policy proposals and speeches with Mr. Volcker. Conference calls and face-to-face meetings of the Obama economic team are often reorganized to accommodate his schedule. When the team discusses the financial crisis, ‘The most important question to Obama: What does Paul Volcker think?’ says Jason Furman, the campaign’s economic-policy director… When Sen. Obama raised the prospect of a package of spending and tax measures to ‘stimulate’ the economy, Mr. Volcker disapproved. ‘Americans are spending beyond their means,’ he told the group. A stimulus package would delay the belt-tightening and savings needed, he added, proposing instead better regulation and assistance to banks.”

By November 8, the odds of Volcker being appointed US Treasury Secretary were 10%, according to the WSJ‘s betting pool. The race was between New York Federal Reserve Bank president Tim Geithner and former Bill Clinton-era Treasury Secretary Lawrence Summers, at 40% odds each. Geithner served under Summers and Robert Rubin in Bill Clinton’s Treasury Department during the 1990s.

Summers is best known for the sexism controversy which cost him the presidency of Harvard in 2006. But 15 years earlier he gained infamy as an advocate of African genocide and environmental racism, thanks to a confidential World Bank memo he signed when he was the institution’s senior vice president and chief economist: “I think the economic logic behind dumping a load of toxic waste in the lowest-wage country is impeccable and we should face up to that… I’ve always thought that underpopulated countries in Africa are vastly underpolluted, their air quality is vastly inefficiently low…”

After all, Summers continued, inhabitants of low-income countries typically die before the age at which they would begin suffering prostate cancer associated with toxic dumping. And in any event, using marginal productivity of labour as a measure, low-income Africans are not worth very much anyhow. Nor are African’s aesthetic concerns with air pollution likely to be as substantive as they are for wealthy northerners.

Such arguments were said by Summers to be made in an “ironic” way (and in his defence, he may have simply plagiarised the memo from a colleague, Lant Pritchett). Yet their internal logic was pursued with a vengeance by the World Bank and IMF long after Summers moved over to the Clinton Treasury Department, where in 1999 he insisted that Joseph Stiglitz be fired by World Bank president James Wolfensohn, for speaking out against the impeccable economic logic of the Washington Consensus.

Volcker, Summers and a whole crew of similar capitalist economists are whispering in Obama’s ear for a resurgent US based on brutal national self-interest. They need Obama to relegitimate shock-doctrinaire neoliberalism — and in turn, they need Obama’s Africa advisers (like Witney Schneidman) to promote military imperialism in the form of the Africa Command.

Whose advice will prevail?

Can Obama instead hear supporters like Bill Fletcher, Imani Countess and Danny Glover, who made TransAfrica (as one example) a visionary economic justice organisation, by fighting the policies of Volcker and Summers? Can AfricaAction, the Institute for Policy Studies, the American Friends Service Committee, Jubilee USA, ActionAid and other genuine advocates for the continent get a word in edgewise, between fits of cackling from the corporate liberals who think they own Obama? Will the president-elect ever get advice from economists James K. Galbraith of the University of Texas or Center for Economic and Policy Research codirectors Dean Baker and Mark Weisbrot, who correctly read the various financial crises way ahead of time, and whose records promoting social justice would serve Africa far better?

Probably not. So it is vital for Africans to wake up to the danger that the likes of Volcker and Summers represent. Anyone paying attention to the continent’s economic decline since 1980 knows the damage they did, but Obama apparently needs to hear more of their sins against his father’s people before he chooses his Treasury Secretary next week. And while he’s at it, how about a revision of Obama’s utterly neoliberal ‘fundamental objective’ for the continent, which is “to accelerate Africa’s integration into the global economy”?

[Patrick Bond directs the Centre for Civil Society in Durban, South Africa: http://www.ukzn.ac.za/ccs; this article was originally a ZNet commentary.]

Four the past fourteen months a Commission appointed by Ecuadorian President Rafael Correa to “audit” the nation’s public debt in the period from 1976-2006 has been labouring away on a report that landed like a bombshell when it was issued on November 20.

La Comisión de Auditoria Integral del CréditoPúblico (Commission for the Integral Audit of the Public Debt) was made up of senior government officials, representatives of Ecuadorian social movements and international organizations. Its mandate was to investigate the legitimacy and legality of external and internal debt incurred by governments in the designated period through the examination of conventions, contracts, and other documents related to acquired public debt and entered into between governments, multilateral financial institutions (IMF, World Bank, etc.), commercial banks, and the private sector both national and foreign.

If the Commission’s conclusions can be verified, a virtual revolution with respect to public debt could very well occur within the entire Third World, for there is little doubt that the kind of financial shenanigans uncovered by the Commission in Ecuador are not unique to that country.

The Commission’s 172 page report outlined various categories of illicit and illegal debt, including “odious debts” incurred by the military dictatorship (1970-1979), usurious debts, and corrupt debts (contracted under conditions that do not conform to the legal norms of the lender or debtor or international norms). It went on to cite instances of illicit and hidden clauses, uncontrolled and disproportionate expenses and commissions, excessive arms sales, capitalization of interest, and fraudulent collusion between lending institutions and government officials that served individual interests at the expense of the Ecuadorian nation.

According to Patrick Esteruelas, analyst at Eurasia Group, the report found “multiple irregularities in debt contracted between 1976 and 2006, such as double payments, abusive clauses, false justifications and negligence on the part of high-level government officials and multilateral institutions.”

Esteruelas, who has seen a copy of the audit report, said that it recommends that Ecuador suspend payments on all three of its global bonds, at least 45 multilateral loans and its debt to the Paris Club of international lenders. “The government will likely use these findings to enter into talks with bond holders over restructuring terms, driving a very hard bargain that will hamstring any negotiations and could likely lead the government to default,” Esteruelas said.

Perhaps the most controversial and explosive finding of the report is that not only private financial institutions but also multilateral lending institutions such as the IMF and World Bank are accused of being guilty of colluding with local government officials to impose impossible conditions and to “socialize” private debt. It alleges that false and misleading information was used to promote indebtedness and makes the general assertion that the lending institutions were guilty of policies that violated national sovereignty in favor of implementing the neoliberal policies of the “Washington Consensus.”

The Report advocates the notion of “co-responsibility” for illicit debt, a concept that the industrialized lending countries and multilateral funding institutions have roundly rejected. The situation may be analogous with the sub-prime rate mortgage lending “scandal” in the United States where lenders knowingly created debt that could not likely be repaid. Many believe that the lender as well as the borrower should share in the responsibility for the disastrous consequences of such practices.

Beyond narrow legal and financial considerations, the Report speaks of the social costs to the people of Ecuador. Its external debt rose from $241 million in 1970 to $16.6 billion in July 2006 (a 690% increase). From 1980 to 2006, the Ecuadorian government’s expenditure on education decreased from 30% to 12% and on health from 10% to 7%, while the percentage of the government budget to service the debt rose from 15% to 47%. A 2006 Report (“Comparte”) indicates that poverty affects 65% of Ecuadorians, and the 70% of Ecuador’s children live in extreme poverty. 30% of Ecuadorian children do not complete primary education.

When President Correa called into question the $30 million coupon on Ecuador’s Global 2012 bonds that was due on November 15 (with a 30-day grace period) ,Ecuador’s credit rate has plummeted. S&P has lowered Ecuador’s long-term sovereign credit rating to CCC- from B-, citing the severe uncertainty regarding the government’s willingness and likelihood to pay during the grace period. Meanwhile, Moody’s downgraded Ecuador’s B3 foreign currency government bond rating to Caa1 and placed them on review for another downgrade. They claim that Ecuador has “ample liquidity” and that the government’s action has demonstrated its “poor willingness” to pay.

True to form, a Moody’s senior analyst, Alessandra Alecci, was quick to “blame the victim.” “It seems that the [Ecuadorian] government’s stance towards bond holders is motivated by political and ideological factors, given the very small fiscal relief that a default would bring compared to the damage to the government’s ability to access international markets,” she said.

Now that Correa has announced that he will not meet the final December 15 deadline, the rating is expected to plummet. According to a report in the Globe and Mail, “Ratings agency Standard & Poor is likely to downgrade Ecuador’s credit rating to “Selective Default” from triple-C-negative, one of the agency’s analysts said after Mr. Correa’s announcement.”

Ecuador’s Alberto Acosta, a highly respected economist who served as President of the country’s recently concluded Constituent Assembly, challenges the position of the lender community. “Debt and corruption,” he says, “are two sides of the same coin.” He points out that “the developed countries have denied any co-responsibility whatsoever in their capacity as lenders, and, in fact, have blocked any investigation of the processes of indebtedness, their legality and, especially their legitimacy.” He cites as an example of the suffering of the underdeveloped nations as a consequence of the vicissitudes of the policies of the wealthy nations the fact that the soaring interest rates of the 1980s resulted in a net loss of financial resources in Latin America of 210 Billion dollars.

The Ecuadorian government has retained U.S. Attorney Paul Reichler of the law firm Foley and Hoag to advise on international law applicable to their case. It is considering an appeal to the World Court at The Hague.

Should Ecuador succeed in its ground breaking attempt to call to account the wealthy nations of the world and their multilateral lending institutions for at least co-responsibility for the enormous social and economic damage to the world’s poorest nations that has resulted from external indebtedness, we very well might see a domino effect. On December 5, the 22 countries that make up the Parlamento Latinoamericano (Latin American Parliament) threw their support behind Ecuador and urged its member to begin similar actions. In Spain, a coalition of more than 50 NGOs has sent a letter to the President of Spain asking the government to forgive its part of the Ecuadorian debt and to review its debts with other countries to verify their legitimacy.

Unwanted fuel to the fire given the state of the world’s financial institutions, on the one hand. On the other, some of the world’s poorest and most exploited nations may be finally taking a stand against the capricious and destructive lending that has deepened their levels of poverty.

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Sources:

Home website of the Comisión de Auditoria Integral del CréditoPúblico: